Lead Republican's resignation slows markets over weekend

The gulf between tea party conservatives and establishment Republicans has gotten so big it just swallowed up the speaker of the House and may threaten the entire Republican Party and Congress itself.AP Photo - Steve Helber

Share Markets:

After a strong start on Friday, US markets lost steam as political uncertainty surrounding the resignation of the US Speaker of the House of Representatives unsettled investors.

The Dow ended the session up 0.7% but the S&P500 was flat and the Nasdaq fell 1.0%.

European markets traded strongly with the French CAC40 up 3.0%.

The FTSE110 was up 2.5%, the German Dax rose 2.8% and the Euro Stoxx was up 3.1%.

Interest Rates:

US interest rates ended the Friday session a touch higher as dealers wrestled with a strong equity market, signs of firmer US economic growth, political uncertainty and the prospect of a lift in the Fed funds rate.

US 10 year government bond yields rose 4 basis points to 2.16% while 2 year yields were little changed at 0.69%.

In Australia, 10 year government bond yields rose 4 basis points to 2.69% and 3 year yields also rose 4 basis points, to 1.91%.

Foreign Exchange:

The US dollar ended the session little changed after a firmer start. The AUD begins the week marginally firmer than it began its Friday trades.

The AUD could be tested today by data on Chinese industrial production.

Commodities:

The report of strong US growth (see below) failed to ignite commodity markets.

Copper was a touch lower, gold fell marginally but oil did pick up 2.0% mostly on a supply slowdown.

Iron ore was unchanged at $US57 per tonne.

Australia:

No major data released.

China:

No major data released.

Europe:

Money supply in the Eurozone grew 4.8% in the year to August.

The pace of growth is well in excess of real economic growth plus inflation and stems from the quantitative easing program of the European Central Bank (ECB).

Like the US before it, the ECB is undertaking unconventional monetary policy in order to stimulate economic activity.

Japan:

Japan's annual inflation rate came in at 0.2% for the year to August. Weaker oil prices kept inflation down. The result excluding food and energy was 0.8%.

Japan is widely expected to undertake further monetary stimulus in order push inflation towards 2.0%.

United States:

The third and final revision to US Q2 GDP was positive with growth now seen at a strong 3.9%, versus a prior estimate of 3.7%.

Encouragingly, all the revisions were driven by personal consumption and business investment, rather than government spending or inventories.

The second revision to Michigan consumer sentiment for September was also positive, the index now at 87.2, up from 85.7.

Speaker of the US House of Representatives John Boehner announced his resignation, both as Speaker and from Congress at the end of October.

Dissension had been growing for some weeks, the Leader's support for continued funding of the US Export-Import Bank and Planned Parenthood putting him in opposition to much of the Republican rank and file.

The risk of another government shutdown in the near term should now be averted, Speaker Boehner now free to ignore the demands of conservatives in his party who are agitating to shut down the government over its continued funding of Planned Parenthood.

A vote for temporary government funding, mostly with the aid of Democratic congressional support should avert shutdown through to mid-December. The risk of shutdown thereafter however will emerge once again.